TW: Pethkoukis entitles his post the "Exec. Comp. the Great Distraction". The piece to which he refers by conservative economist Becker asserts the Great Recession/Credit Implosion is not attributable to obscene executive/Wall Street compensation. He may be right. But obscene compensation is a symptom of the disease within our economy not a primary cause.
The outrage over compensation is not because folks attribute the crash to the compensation but because it appears unearned, inequitable and based upon power structures which benefit those at the top of the pyramid. Because the compensation structures did not "cause" the Crash is no reason not to address the compensation structures.
From Gary Becker via Jim Pethokoukis"
"I have not seen convincing evidence that either the level or structure of the pay of top financial executives were important causes of this worldwide financial crash. These executives bought large quantities of mortgage-backed securities and other securitized assets because they expected this to increase the average return on their assets without taking on much additional risk through the better risk management offered by derivatives, credit default swaps, and other newer types of securities. They turned out to be badly wrong, but so too were the many financial economists who had no sizable financial stake in these assets, but supported this approach to risk management.
The experience of other financial crashes also does not indicate that either the level or form of compensation of top financial executives were major factors in precipitating these crashes. Thousands of banks failed during the Great Depression, as did hundreds of American savings and loans institutions during the 1980s, without heads of these institutions in either case getting particularly high pay, or pay that was mainly in the form of bonuses and stock options. My impression is that this same conclusion applies to the Mexican bank crisis of the mid 1990s, and the Asian financial crisis at the end of the 1990s.
The generous bonuses and stock options received by financial executives may often have been unwarranted, but they are being used as a scapegoat for other more crucial factors. Financial institutions underrated the systemic risks of the more exotic assets, and apparently so too did the Fed and other regulators of financial institutions. In addition, large financial institutions may have recognized that they were “too big to fail”, and that they would be rescued by taxpayer monies if they were on the verge of bankruptcy because they took on excessively risky assets."
Showing posts with label Pethokoukis. Show all posts
Showing posts with label Pethokoukis. Show all posts
Tuesday, October 27, 2009
Friday, October 23, 2009
Controlling Banker Compensation
TW: I thought financial industry compensation was messed up years ago, nothing in the past year has changed my mind. I have met many talented people in my life and career including many in finance. I assure you those in finance are no more talented than the rest. This latest gig where but for the grace of massive governmental intervention every damn banker would have ended up like Lehman partners. And where due to the horrible under-capitalization of banking entities throughout most of the world, the yield curve is being held low at the short end so that banks can mint money like crazy but the bankers now feel entitled to record bonuses is f'ed up. Why these folks think it is their own freaking brilliance that is driving their now highly profitable situation is beyond me although given their pervasive arrogance it is hardly surprising. Yet...
Yet...what to do. Without the government intervention and low rates, your ATM card would have failed to work at some point last October and the economy would be at best in a depression.
The pieces below deriding the latest moves to limit pay are more or less accurate. Folks sense (rightly) something is wrong but I do not believe anyone really knows what to do about it. The tea baggers march against "Wall Street" but raucously oppose "government intervention". The left generally has no clue on how to deal with finance other than to "protect consumers" which usually translates into marginally useful to mostly useless regulations which have little to do with how power is accumulated and money disbursed on amongst financial oligarchs.
I certainly have no suggestions.
From Marginal Revolution (via Pethokoukis):
"There is no way this will work as advertised. If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere. Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut. Chaos will be created at these firms as top people leave in droves. Will the administration then order people back to work?"
From Naked Capitalism(also via Peth):
"The point is that the collection of these scalps will do nothing to comp levels ex these firms. The companies that also enjoy implicit government guarantees are free to do the “heads I win, tails you lose” game of privatized gains and socialized losses. And Ken Lewis is the poster child of why these measures are completely meaningless. He sacrificed his 2009 pay, but will still collect $125 million when he departs Bank of America.
If the government is going to backstop the industry (and this isn’t an “if” anymore), it needs to limit those firm’s activities to what is socially valuable and regulate them heavily to contain risk taking. As we have said, reining in executive pay (and note there is no will to do that anyhow) is not an effective approach. Those employees who don’t like that are free to decamp and raise money in ways that do not involve the regulated firms in any way, shape, or form, save perhaps counterparty exposures on very safe, highly liquid instruments."
Yet...what to do. Without the government intervention and low rates, your ATM card would have failed to work at some point last October and the economy would be at best in a depression.
The pieces below deriding the latest moves to limit pay are more or less accurate. Folks sense (rightly) something is wrong but I do not believe anyone really knows what to do about it. The tea baggers march against "Wall Street" but raucously oppose "government intervention". The left generally has no clue on how to deal with finance other than to "protect consumers" which usually translates into marginally useful to mostly useless regulations which have little to do with how power is accumulated and money disbursed on amongst financial oligarchs.
I certainly have no suggestions.
From Marginal Revolution (via Pethokoukis):
"There is no way this will work as advertised. If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere. Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut. Chaos will be created at these firms as top people leave in droves. Will the administration then order people back to work?"
From Naked Capitalism(also via Peth):
"The point is that the collection of these scalps will do nothing to comp levels ex these firms. The companies that also enjoy implicit government guarantees are free to do the “heads I win, tails you lose” game of privatized gains and socialized losses. And Ken Lewis is the poster child of why these measures are completely meaningless. He sacrificed his 2009 pay, but will still collect $125 million when he departs Bank of America.
If the government is going to backstop the industry (and this isn’t an “if” anymore), it needs to limit those firm’s activities to what is socially valuable and regulate them heavily to contain risk taking. As we have said, reining in executive pay (and note there is no will to do that anyhow) is not an effective approach. Those employees who don’t like that are free to decamp and raise money in ways that do not involve the regulated firms in any way, shape, or form, save perhaps counterparty exposures on very safe, highly liquid instruments."
Monday, October 12, 2009
A Republican's Fiscal Ideas
TW: Conservative supply-side acolyte Pethoukoukis summarizes fellow our new favorite conservative Bruce Bartlett's proposals on fiscal policy. I insert comment below.
From James Pethokouki at Reuter:
"Bartlett on how much revenue a VAT would raise:
If we only need to raise taxes by a percentage point or two, to say 20% of GDP, then we don’t need a VAT unless we want to use it as a pure tax reform. We could use the revenue to abolish the AMT, abolish the estate tax, maybe abolish the corporate tax, whatever. That would be fine with me because we don’t need the revenue today. But I think we will need it in the future because I don’t see any natural limit to spending or any appetite in either party for significant spending cuts. Therefore, unless we want deficits of 10% of GDP forever we have to raise revenue. When the day comes that the political class finally agrees to raise net new revenue it will be better to raise it through a VAT a percent or even fraction of a percent at a time. If the VAT is already in place that will be easy—too easy, you probably think. But the only other alternative is to raise tax rates, which is worse.
TW: He is right VAT is a very powerful tax instrument that can raise revenue quickly without the direct and poltically unpalatable pain of income taxes. For that reason it is dangerous. On the other hand, where are the folks standing up volunteering to cut their social security or Medicare or cut defense spending?
Bartlett on a tax system he likes better than the VAT:
My ideal tax system is a...flat tax, always has been. At this point I think it is inevitable that if we adopt a VAT it will basically be as an add-on to all the other taxes—that’s the way it is in every other country. If we can get rid of some worse taxes as part of the deal, that’s great. But to make that deal, conservatives have to play the game. If Democrats have to raise taxes on their own, they will do it in the worst possible way, economically. But if the Republican alternative is to do nothing, then Democrats will do what they have to do as they did in 1993. If they decide to do a VAT they would undoubtedly be very amenable to using some of the revenue for tax cuts that would enhance growth. But, again, if Republicans refuse to play the game and won’t commit themselves to support the final package, then Democrats will do it on their own and we will end up with something worse—multiple rates, exemptions that create inefficiency, and higher income tax rates to boot.
TW: Obviously I am not as cynical about the Dem as Bartlett, but I agree a bi-partisan tax plan would likely be better than a "liberal" Dem plan. But like they say it take two to tango. I do not believe the Repubs are anywhere near ready to deal on taxes.
Bartlett on Republicans and budget deficits:
At some point, conservatives have to realize that they have to make a choice. Refusing to make one by living in a dream world where truly massive spending cuts are enacted to keep spending and taxes as a share of GDP in their historical range is not an option, in my opinion. If conservatives think I am wrong about the need for significantly higher taxes, then I think they have a responsibility to put plans on the table to seriously cut Social Security, Medicare and Medicaid and put real effort into getting them enacted. But I don’t see it. All I see are pie-in-the-sky plans to privatize these programs and somehow magically cut spending without reducing anyone’s benefits. Those aren’t going to happen, ever. So if we are going to live in the real world, how will spending be cut enough to prevent the need for higher taxes. If you find out, let me know."
http://blogs.reuters.com/james-pethokoukis/2009/10/08/vat-attack-the-value-added-tax-bruce-bartlett-and-deficits/
From James Pethokouki at Reuter:
"Bartlett on how much revenue a VAT would raise:
If we only need to raise taxes by a percentage point or two, to say 20% of GDP, then we don’t need a VAT unless we want to use it as a pure tax reform. We could use the revenue to abolish the AMT, abolish the estate tax, maybe abolish the corporate tax, whatever. That would be fine with me because we don’t need the revenue today. But I think we will need it in the future because I don’t see any natural limit to spending or any appetite in either party for significant spending cuts. Therefore, unless we want deficits of 10% of GDP forever we have to raise revenue. When the day comes that the political class finally agrees to raise net new revenue it will be better to raise it through a VAT a percent or even fraction of a percent at a time. If the VAT is already in place that will be easy—too easy, you probably think. But the only other alternative is to raise tax rates, which is worse.
TW: He is right VAT is a very powerful tax instrument that can raise revenue quickly without the direct and poltically unpalatable pain of income taxes. For that reason it is dangerous. On the other hand, where are the folks standing up volunteering to cut their social security or Medicare or cut defense spending?
Bartlett on a tax system he likes better than the VAT:
My ideal tax system is a...flat tax, always has been. At this point I think it is inevitable that if we adopt a VAT it will basically be as an add-on to all the other taxes—that’s the way it is in every other country. If we can get rid of some worse taxes as part of the deal, that’s great. But to make that deal, conservatives have to play the game. If Democrats have to raise taxes on their own, they will do it in the worst possible way, economically. But if the Republican alternative is to do nothing, then Democrats will do what they have to do as they did in 1993. If they decide to do a VAT they would undoubtedly be very amenable to using some of the revenue for tax cuts that would enhance growth. But, again, if Republicans refuse to play the game and won’t commit themselves to support the final package, then Democrats will do it on their own and we will end up with something worse—multiple rates, exemptions that create inefficiency, and higher income tax rates to boot.
TW: Obviously I am not as cynical about the Dem as Bartlett, but I agree a bi-partisan tax plan would likely be better than a "liberal" Dem plan. But like they say it take two to tango. I do not believe the Repubs are anywhere near ready to deal on taxes.
Bartlett on Republicans and budget deficits:
At some point, conservatives have to realize that they have to make a choice. Refusing to make one by living in a dream world where truly massive spending cuts are enacted to keep spending and taxes as a share of GDP in their historical range is not an option, in my opinion. If conservatives think I am wrong about the need for significantly higher taxes, then I think they have a responsibility to put plans on the table to seriously cut Social Security, Medicare and Medicaid and put real effort into getting them enacted. But I don’t see it. All I see are pie-in-the-sky plans to privatize these programs and somehow magically cut spending without reducing anyone’s benefits. Those aren’t going to happen, ever. So if we are going to live in the real world, how will spending be cut enough to prevent the need for higher taxes. If you find out, let me know."
http://blogs.reuters.com/james-pethokoukis/2009/10/08/vat-attack-the-value-added-tax-bruce-bartlett-and-deficits/
Tuesday, September 22, 2009
Re-TARP-ed
TW: I have yet to meet a financial industry professional who does not believe our financial system was on the brink of collapse last fall. Not collapse as in another bank would have gone down like BofA, or the market would have gone down even more, but collapse as in your ATM would not have worked for awhile perhaps a long while and if that had happened for even a day or two things would have gotten real interesting really fast.
That said now that the world (for now at least) has not fallen apart, certain panderific folks are going to come out of the woodwork to claim TARP was not necessary. There were fools like Mike Pence saying as much at the time and I would expect intellectually challenged folks like Palin to make such claims. But Mitt Romney knows better. He is something worse- a pander monkey, a tendency he exhibited often during the Republican primaries.
From James Pethokoukis at Reuters:
"OK, here is what the front runner (at least according to the online betting markets) for the 2012 GOP nomination said at the Value Voters summit over the weekend:
'When government is trying to take over health care, buying car companies, bailing out banks, and giving half the White House staff the title of czar – we have every good reason to be alarmed and to speak our mind!'
Now that does sounds like a repudiation of TARP. And here is what Mitt Romney told me in March:
'The TARP program, while not transparent and not having been used as wisely it should have been, was nevertheless necessary to keep banks from collapsing in a cascade of failures. You cannot have a free economy and free market if there is not a financial system. … The TARP program was designed to keep the financial system going, to keep money circulating in the economy, without which the entire economy stops and you would really have an economic collapse.'
Now that does sound like an endorsement of TARP. If Romney liked it then and doesn’t like it now for policy reasons, I think that is OK. But if that is the case, he should explain is reasoning and change of mind. Of course, the cynical explanation is that Romney now realizes that among many conservative GOPers, endorsement of TARP is almost a disqualifier for the 2012 nomination. So he is trying to muddy his support a bit..."
http://blogs.reuters.com/james-pethokoukis/2009/09/21/did-romney-flip-flop-on-tarp/
That said now that the world (for now at least) has not fallen apart, certain panderific folks are going to come out of the woodwork to claim TARP was not necessary. There were fools like Mike Pence saying as much at the time and I would expect intellectually challenged folks like Palin to make such claims. But Mitt Romney knows better. He is something worse- a pander monkey, a tendency he exhibited often during the Republican primaries.
From James Pethokoukis at Reuters:
"OK, here is what the front runner (at least according to the online betting markets) for the 2012 GOP nomination said at the Value Voters summit over the weekend:
'When government is trying to take over health care, buying car companies, bailing out banks, and giving half the White House staff the title of czar – we have every good reason to be alarmed and to speak our mind!'
Now that does sounds like a repudiation of TARP. And here is what Mitt Romney told me in March:
'The TARP program, while not transparent and not having been used as wisely it should have been, was nevertheless necessary to keep banks from collapsing in a cascade of failures. You cannot have a free economy and free market if there is not a financial system. … The TARP program was designed to keep the financial system going, to keep money circulating in the economy, without which the entire economy stops and you would really have an economic collapse.'
Now that does sound like an endorsement of TARP. If Romney liked it then and doesn’t like it now for policy reasons, I think that is OK. But if that is the case, he should explain is reasoning and change of mind. Of course, the cynical explanation is that Romney now realizes that among many conservative GOPers, endorsement of TARP is almost a disqualifier for the 2012 nomination. So he is trying to muddy his support a bit..."
http://blogs.reuters.com/james-pethokoukis/2009/09/21/did-romney-flip-flop-on-tarp/
Monday, August 24, 2009
Stimulate Now But Be a Deficit Hawk Later
TW: I rag on Pethokoukis frequently but I agree with the substance of this piece. It is in fact the holy grail as far as I am concerned for a wise and successful Obama fiscal policy. Stimulate the economy in the short-run to mitigate the impact of the Great Contraction, but define a plan by which the long-term fiscal challenges facing America can be addressed.
The concept is simple, its execution, not so much. The fiscal "tweaks" Pethoukoukis mentions are politically challenging to say the least. Reducing the growth rates on Social Security and Medicare spending must occur if the U.S. is to achieve fiscal soundness yet as evidenced by the tumult with health care reform, implementing the changes are treacherous. Furthermore, conservatives like Pethokoukis may mention these type initiatives but neither he nor more importantly practically any actual elected Republican officials publicly are willing to put the meat on the concepts (a propos ironically Micheal Steele RNC chairman has a piece in today's WaPo pledging to protect Medicare from the Dems). What would you rather do pander to the seniors (with their 50MM and growing voting bloc) or bite the bullet on fiscal responsibility?
As I have said before, addressing our fiscal posture is by no means impossible, the options are fairly clear. Accumulating the political will in face of entrenched interests and voting blocs is the challenge.
From James Pethokoukis at Reuters:
"If so, unemployment would remain really high. And, given that prospect, you just know incumbent Democrats facing re-election in 2010 would love to vote for Son of Stimulus. The big drawback: Doing so would risk the wrath of budget-conscious independents, as well as bond investors who share Warren Buffett’s stated concerns that all this red ink could sink the dollar. Plus, a backup in interest rates would negate any positive effects from more stimulus.
But Olivier Blanchard, chief economist at the International Monetary Fund, may have cracked the code on to boost the economy and not spook bond investors and budget hawks. Blanchard’s grand bargain, one I have been suggesting for months, is for government to spend more money in the short term to boost growth while simultaneously taking strong action to reduce the long-term budget deficit. “The trade-off is fairly attractive,” Blanchard said in a report this week. “IMF estimates suggest that the fiscal cost of future increases in entitlements is 10 times the fiscal cost of the crisis. Thus, even a modest cut in the growth rate of entitlement programs can buy substantial fiscal space for continuing stimulus.”
Fiscal space is good! When you’re dealing with gobsmacking budget numbers, small cuts (or even just nicks in the rate of growth) can make a huge, real-world difference. As the Peterson Foundation figures it, Uncle Sam has run up some $55 trillion in long-term liabilities. Minor tweaks that make that number a bit more manageable in the future would create huge fiscal opportunities for more pro-growth measures today.
One example: the Dartmouth Institute for Health Policy and Clinical Practice calculates that if Medicare spending across America “grew at the San Francisco rate of 2.4 percent per year instead of the current national average (3.5 percent), Medicare would achieve a cumulative savings of $1.42 trillion between now and 2023.” That’s a nice chunk of change. Or, as an analysis I commissioned from the American Enterprise Institute revealed, extending the Social Security retirement age while at the same time indexing benefits to inflation rather than wages would turn a $5 trillion present value deficit into a $5 trillion surplus.
Can America afford to upgrade its rotting transportation infrastructure and electrical grid while also, say, lowering corporate and investment tax rates to a more internationally competitive level? Yes and yes. If entitlement liabilities are downscaled, the U.S economy can generate more than enough future economic growth and excess tax revenue tomorrow to “pay for” smart investments today. That would create jobs and strengthen America’s economic foundation -– and keep the bond vigilantes at bay."
http://blogs.reuters.com/james-pethokoukis/2009/08/24/how-obama-could-prevent-a-second-recession/
The concept is simple, its execution, not so much. The fiscal "tweaks" Pethoukoukis mentions are politically challenging to say the least. Reducing the growth rates on Social Security and Medicare spending must occur if the U.S. is to achieve fiscal soundness yet as evidenced by the tumult with health care reform, implementing the changes are treacherous. Furthermore, conservatives like Pethokoukis may mention these type initiatives but neither he nor more importantly practically any actual elected Republican officials publicly are willing to put the meat on the concepts (a propos ironically Micheal Steele RNC chairman has a piece in today's WaPo pledging to protect Medicare from the Dems). What would you rather do pander to the seniors (with their 50MM and growing voting bloc) or bite the bullet on fiscal responsibility?
As I have said before, addressing our fiscal posture is by no means impossible, the options are fairly clear. Accumulating the political will in face of entrenched interests and voting blocs is the challenge.
From James Pethokoukis at Reuters:
"If so, unemployment would remain really high. And, given that prospect, you just know incumbent Democrats facing re-election in 2010 would love to vote for Son of Stimulus. The big drawback: Doing so would risk the wrath of budget-conscious independents, as well as bond investors who share Warren Buffett’s stated concerns that all this red ink could sink the dollar. Plus, a backup in interest rates would negate any positive effects from more stimulus.
But Olivier Blanchard, chief economist at the International Monetary Fund, may have cracked the code on to boost the economy and not spook bond investors and budget hawks. Blanchard’s grand bargain, one I have been suggesting for months, is for government to spend more money in the short term to boost growth while simultaneously taking strong action to reduce the long-term budget deficit. “The trade-off is fairly attractive,” Blanchard said in a report this week. “IMF estimates suggest that the fiscal cost of future increases in entitlements is 10 times the fiscal cost of the crisis. Thus, even a modest cut in the growth rate of entitlement programs can buy substantial fiscal space for continuing stimulus.”
Fiscal space is good! When you’re dealing with gobsmacking budget numbers, small cuts (or even just nicks in the rate of growth) can make a huge, real-world difference. As the Peterson Foundation figures it, Uncle Sam has run up some $55 trillion in long-term liabilities. Minor tweaks that make that number a bit more manageable in the future would create huge fiscal opportunities for more pro-growth measures today.
One example: the Dartmouth Institute for Health Policy and Clinical Practice calculates that if Medicare spending across America “grew at the San Francisco rate of 2.4 percent per year instead of the current national average (3.5 percent), Medicare would achieve a cumulative savings of $1.42 trillion between now and 2023.” That’s a nice chunk of change. Or, as an analysis I commissioned from the American Enterprise Institute revealed, extending the Social Security retirement age while at the same time indexing benefits to inflation rather than wages would turn a $5 trillion present value deficit into a $5 trillion surplus.
Can America afford to upgrade its rotting transportation infrastructure and electrical grid while also, say, lowering corporate and investment tax rates to a more internationally competitive level? Yes and yes. If entitlement liabilities are downscaled, the U.S economy can generate more than enough future economic growth and excess tax revenue tomorrow to “pay for” smart investments today. That would create jobs and strengthen America’s economic foundation -– and keep the bond vigilantes at bay."
http://blogs.reuters.com/james-pethokoukis/2009/08/24/how-obama-could-prevent-a-second-recession/
Tuesday, August 18, 2009
Cynical Opposition
From Paul Krugman at NYT:
"A brief thought, linking two people: Robert Samuelson and Greg Mankiw.
Both enjoy lecturing us on the need to take strong action — Samuelson demanding that we do something about rising health care spending, Mankiw that we join the “Pigou club” by taxing oil consumption.
But both can reliably be counted on to reject any actual proposal along these lines that either (a) has any chance whatsoever of becoming legislation or (b) is proposed by Democrats."
From Ed Yardeni via James Pethokoukis at Reuters:
"Proponents of ObamaCare repeatedly ask senior citizens if they are happy with Medicare. Not surprisingly, they love it. It’s free, and places few restrictions on the services and drugs that are covered by the program. Medicaid works the same way for non-senior citizens who are too poor to pay for health care insurance. So why don’t we all get Medicare? Because it is a fraud.
Ask doctors and hospital administrators about Medicare and Medicaid and they will tell you that it amounts to a theft of their services because the government doesn’t pay them enough to cover their expenses for the care they provide. So they pass those costs on to patients covered by private health insurance. This is why medical care prices are rising faster in the CPI–which includes workers’ out-of-pocket expenses, but not the government’s costs of coverage–than in the PCED, which includes both. Then the audacious proponents of more government in health care have the audacity to claim that costs are rising too fast because of waste, inefficiencies, and fraud in the privately-run system!"
TW: There are a couple of strains of Republican opposition- the neo-con, Hooverite, social conservative, populist baiters (Palin, Limbaugh, Fox News) and the reasonable but highly cynical folks. Am not sure which is worse.
Folks like Greg Mankiw and Ed Yardeni amongst others actually provide some intellectual heft to their party (frequently with a rational libertarian bent). Being loyal Republicans, however, their role has become lockstep opposition to Obama whilst launching endless suggested policies which while intellectually interesting have zero chance of enactment.
Their proposals include amongst others:
1) a carbon tax to address global warming and U.S. oil dependency (I fully support this)
2) opposition to Medicare (I empathize with their concerns although would not abolish it by any means)
3) taxing employee health care benefits (I fully support this)
4) removing many tax entitlements (i.e. mortgage interest deductions- I fully support this as well).
5) they supported "stimulus" but only in the form of tax cuts. Just like they have supported any and every tax cut since Reagan as they are mostly "supply siders" believing in the mystical powers of cutting taxes (primarily in the wealthy) to somehow generate increased tax revenues.
They cynically make quotes like the above about health reform to sew doubt and dissent about Obama's efforts. But their proposed alternative "solutions" are utterly impractical and they know it (this is the piece that chafes me about these folks). There is a reason only non-elected economists like Yardeni and Mankiw make such proposals, if a politician made them they would either never be elected or occupy a fringe seat like a Dennis Kucinich or Ron Paul.
But the Mankiw et al. play an important role for the Republicans, they provide a raft for those moderates with libertarian streaks who like their theories and who do not identify with the neo-con, populist, social conservatives to take the easy road and oppose change.
"A brief thought, linking two people: Robert Samuelson and Greg Mankiw.
Both enjoy lecturing us on the need to take strong action — Samuelson demanding that we do something about rising health care spending, Mankiw that we join the “Pigou club” by taxing oil consumption.
But both can reliably be counted on to reject any actual proposal along these lines that either (a) has any chance whatsoever of becoming legislation or (b) is proposed by Democrats."
From Ed Yardeni via James Pethokoukis at Reuters:
"Proponents of ObamaCare repeatedly ask senior citizens if they are happy with Medicare. Not surprisingly, they love it. It’s free, and places few restrictions on the services and drugs that are covered by the program. Medicaid works the same way for non-senior citizens who are too poor to pay for health care insurance. So why don’t we all get Medicare? Because it is a fraud.
Ask doctors and hospital administrators about Medicare and Medicaid and they will tell you that it amounts to a theft of their services because the government doesn’t pay them enough to cover their expenses for the care they provide. So they pass those costs on to patients covered by private health insurance. This is why medical care prices are rising faster in the CPI–which includes workers’ out-of-pocket expenses, but not the government’s costs of coverage–than in the PCED, which includes both. Then the audacious proponents of more government in health care have the audacity to claim that costs are rising too fast because of waste, inefficiencies, and fraud in the privately-run system!"
TW: There are a couple of strains of Republican opposition- the neo-con, Hooverite, social conservative, populist baiters (Palin, Limbaugh, Fox News) and the reasonable but highly cynical folks. Am not sure which is worse.
Folks like Greg Mankiw and Ed Yardeni amongst others actually provide some intellectual heft to their party (frequently with a rational libertarian bent). Being loyal Republicans, however, their role has become lockstep opposition to Obama whilst launching endless suggested policies which while intellectually interesting have zero chance of enactment.
Their proposals include amongst others:
1) a carbon tax to address global warming and U.S. oil dependency (I fully support this)
2) opposition to Medicare (I empathize with their concerns although would not abolish it by any means)
3) taxing employee health care benefits (I fully support this)
4) removing many tax entitlements (i.e. mortgage interest deductions- I fully support this as well).
5) they supported "stimulus" but only in the form of tax cuts. Just like they have supported any and every tax cut since Reagan as they are mostly "supply siders" believing in the mystical powers of cutting taxes (primarily in the wealthy) to somehow generate increased tax revenues.
They cynically make quotes like the above about health reform to sew doubt and dissent about Obama's efforts. But their proposed alternative "solutions" are utterly impractical and they know it (this is the piece that chafes me about these folks). There is a reason only non-elected economists like Yardeni and Mankiw make such proposals, if a politician made them they would either never be elected or occupy a fringe seat like a Dennis Kucinich or Ron Paul.
But the Mankiw et al. play an important role for the Republicans, they provide a raft for those moderates with libertarian streaks who like their theories and who do not identify with the neo-con, populist, social conservatives to take the easy road and oppose change.
Saturday, August 15, 2009
Fox News: Unfair And Unbalanced
Above from Media Matters tracking Fox News "experts" early this weekBelow from conservative snarkist James Pethokoukis of Reuters:
"I think it is hilarious that the protesters get criticized for being uninformed about an uber-compliated plan that has been marketed in talking points and catch phrases. How dare they! This administration loves complicated, only-an-economist-could-love approaches."
TW: The recipe is simple: confuse, mis-lead, mis-inform; then react with surprise when folks get agitated; then blame it on those damn elitist Dems who just cannot communicate with the little folks. Who is patronizing who here?
Americans get the governance they deserve. If we cannot burn this this BS, then yes we deserve to fade as a world power as ill-informed, close-minded or passive populaces allow themselves to led around by the nose by this approach.
Thursday, July 30, 2009
The Old "Wealthy Pay All the Taxes" Whine From the Right
TW: Like clockwork this morning I see the conservative econ bloggers flagging the annual Tax Foundation report that shows wealthy folks paying lots of federal tax, their grave tones indicating they are purveying profound new information is so very cynical if utterly consistent: 
From Jim Pethokoukis:
"1) The top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government — the highest percentage in modern history — while the top 1 percent paid 24.8 percent of the income tax burden.
2) The share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.
3) To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined."
From Greg Mankiw:
"IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act. Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined."
"1) The top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government — the highest percentage in modern history — while the top 1 percent paid 24.8 percent of the income tax burden.
2) The share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.
3) To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined."
From Greg Mankiw:
"IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act. Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined."
TW: We have debunked this propaganda previously. It is not challenging. Conservatives throw out this meme to portray "woe is me" for wealthy taxpayers. But they NEVER complete the circle. They only show federal income tax so payroll taxes, state and local taxes, sales taxes which are paid far more proportionately by less wealthy folks are ignored. Most importantly they NEVER do the intellectually honest thing and show what % of the income those same wealthy folks have. The basic point- income is so concentrated now in the U.S. that the wealthy pay a % of the federal income tax because they possess a high % of the income, unless the federal taxes are set up to be regressive they will inherently pay a % of the federal income tax.
The graph at the top from Peth might as well be a graph of how income has pooled at the top to the detriment of the middle and lower classes. Here are some more relevant graphics:
Monday, May 18, 2009
Do Not Listen To These Folks!! (cont.)
TW: Here we have the same cast of characters from yesterday's post, recall this video is from May 14, 2008. The inimitable Pat Buchanan joins them. What struck me with this video beyond the pomposity and inaccuracy, were the obvious cynacism of Kudlow and the looming problem McCain had at the time as evidenced by the Luskin character. Recall btw a year ago we were in that weird period when Obama was almost mathmatically a certainty but Clinton insisted on hanging on until the final primaries were over.
Buchanan and Kudlow try to assert Obama would never win the general election since he could not get the Bubba vote (Buchanan extrapolating the West Virgina primary results to show that Obama would lose Ohio, Michigan, Pennsylvania and Virginia). But even though Kudlow delivers all of his pro-McCain stuff with a straight face he slips and saying "and crows could fly" when Buchanan makes his prediction.
This playacting by Kudlow destroys any intellectual credibility he might have. We are all biased but he apparently views himself as a Republican PR conduit. PR reps are meant to spout the company line regardless of facts. When a guy like Kudlow becomes a pure PR conduit yet is meant to be dispensing investment advice, be VERY afraid.
Finally Luskin starts to voice what became a problem for McCain, "he was not a real conservative". This problem led to a real conservative of sorts, Ms. Palin. This attitude continues to infect the Republican party which cannot yet accept any but the most doctrinaire as their leaders.
Sunday, May 17, 2009
Do Not Listen To These Folks!!
TW: This video is priceless, it is from May 14, 2008. The "expert" forecasting is shockingly bad enough. But the manner in which they deliver their ignorance is the true joy. Patronizing, smug, testosterony and almost 100% wrong. Kudlow starts with how Obama was headed toward defeat, then most of them proceed to gang up on the one guy predicting a recession. Treating him like a pathetic pariah while they all make ridiculously pompous forecasts of how the economy was NOT in recession and would not go into a recession etc.
The point is these guys not only have not been laughed off TV they are still on TV, regularly. Generally they are the ones bitching about Obama, touting supply-side economics and whining about how Wall Street is being humped by the "government". They were frightfully wrong in May 2008. Why would you possibly listen to them in May 2009.
Keep an eye out for this Don Luskin guy, his pomposity and inaccuracy exceeded all others. Not surprisingly as you will see on tomorrow's installment when they shifted their focus to politics his hitting streak continued.
Wednesday, February 4, 2009
We Have Him Where We Want Him!!!
TW: The Republicans smell blood in the water with the Daschle kerfuffle and the stimulus negotiations getting bogged down. My buddy Larry Kudlow is calling for Geithner (in sympathy with Daschle) to resign, Pethokoukis (right wing blogger for US News World Report) is suggesting Obama will be a one-termer, and a right wing nut blogger-Ed Morrisey suggests we have a train wreck:
"Now Obama looks weak and inexperienced, flailing at his first executive position in government — just as many of us predicted he would do during the campaign. The media never bothered to ask the tough questions about his lack of experience and instead extolled his coolness and his competence. Maybe now they’ll at least drop the Greatest Transition Ever meme and start reporting on what a train wreck it became."
TW: The Republicans are seeking to cut off Obama at the knees before he gets started. In addition, they are teeing up their 2010 and 2012 election memes. Tax cuts, tax cuts, tax cuts (not temporary but permanent) and if Obama does not enact tax cuts, tax cuts, tax cuts and the economy does not recover immediately then it will be because he did not cut taxes enough.
From Pethoukoukis
"This [the stimulus plan] isn't that hard: a) cut payroll taxes; b) cut corporate taxes or put in an investment tax credit; c)suspend mark-to-market accounting; d) a capital gains tax holiday; e) loans to states and cities; f) targeted infrastructure spending."
TW: This happy horse dung (am sure he throws in e and f to appear balanced but there would not be any money left after a,b,d and how you reform the banks without mark to market would be interesting) is why Obama needs to step up his communication and education. He has done it before and will do it again. Consider this Republican premature umm...euphoria.
"Now Obama looks weak and inexperienced, flailing at his first executive position in government — just as many of us predicted he would do during the campaign. The media never bothered to ask the tough questions about his lack of experience and instead extolled his coolness and his competence. Maybe now they’ll at least drop the Greatest Transition Ever meme and start reporting on what a train wreck it became."
TW: The Republicans are seeking to cut off Obama at the knees before he gets started. In addition, they are teeing up their 2010 and 2012 election memes. Tax cuts, tax cuts, tax cuts (not temporary but permanent) and if Obama does not enact tax cuts, tax cuts, tax cuts and the economy does not recover immediately then it will be because he did not cut taxes enough.
From Pethoukoukis
"This [the stimulus plan] isn't that hard: a) cut payroll taxes; b) cut corporate taxes or put in an investment tax credit; c)suspend mark-to-market accounting; d) a capital gains tax holiday; e) loans to states and cities; f) targeted infrastructure spending."
TW: This happy horse dung (am sure he throws in e and f to appear balanced but there would not be any money left after a,b,d and how you reform the banks without mark to market would be interesting) is why Obama needs to step up his communication and education. He has done it before and will do it again. Consider this Republican premature umm...euphoria.
Monday, January 12, 2009
Echo Chamber: If Only....
"It's sad to say, but we really went nowhere for almost ten years, after you extract the boost provided by the housing and mortgage boom. It's almost a lost economic decade."
--Mark Zandi, chief economist of Moody's Economy.com
TW: Below is a blog post from US News & World Report journalist Jim Pethokoukis. He is a supply side conservative acolyte of Larry Kudlow and Art Laffer. His post demonstrates the delusional behavior of someone glued to a defunct ideology. He just will not let go of cut taxes, cut taxes, cut taxes. How do they rationalize their views? by assuming away the facts.
From Pethokoukis at USNWR:
"Before the recession, we were headed toward a surplus. A useful reminder of economic reality from Jim Glassman of JP Morgan Chase:
TW: So just a couple of small assumptions and voila a surplus:
1) If we had not had the current recession, the worst in at least 25 year along with the related credit crisis the worst since GD 1.0. Life would be so much simpler without those pesky recessions which of course had nothing to do with financial bubbles perpetuated during the W Administration.
2) Lets assume away that little skirmish in Iraq and the ubiquitous GWOT and Katrina (it takes some cojones to use Katrina as an excuse for W. Bush)
And oh btw, W. Bush inherited a $200+ billion annual surplus. These people should not be in government or compensated to spread their ignorance.
--Mark Zandi, chief economist of Moody's Economy.com
TW: Below is a blog post from US News & World Report journalist Jim Pethokoukis. He is a supply side conservative acolyte of Larry Kudlow and Art Laffer. His post demonstrates the delusional behavior of someone glued to a defunct ideology. He just will not let go of cut taxes, cut taxes, cut taxes. How do they rationalize their views? by assuming away the facts.
From Pethokoukis at USNWR:
"Before the recession, we were headed toward a surplus. A useful reminder of economic reality from Jim Glassman of JP Morgan Chase:
The US response to the economic crisis at the beginning of this decade is an affirmative lesson on how to address economic crises. The combined actions of the Bush Administration, the 2001 tax cut agreement, together with two major rounds of economic stimulus measures, including investment incentives and a reduction in the capital gains and dividend taxes, added up to about 5% of GDP all told. This was the biggest fiscal response in memory, since World War II, up to that point. At first the budget deficit deteriorated, as budget hawks at the time were quick to point out. By 2004 the surplus of 2000 and turned into a budget deficit of about 4% of nominal GDP. But the bold fiscal response hastened the recovery and by 2007 the deficit had declined to 1% of GDP. The government’s books would have recorded a small surplus in 2007 had it not been for the $200 billion tab for the commitments in the Middle East and the aid to the New Orleans area that is recovering from the damage from Hurricane Katrina in the fall of 2005."
TW: So just a couple of small assumptions and voila a surplus:
1) If we had not had the current recession, the worst in at least 25 year along with the related credit crisis the worst since GD 1.0. Life would be so much simpler without those pesky recessions which of course had nothing to do with financial bubbles perpetuated during the W Administration.
2) Lets assume away that little skirmish in Iraq and the ubiquitous GWOT and Katrina (it takes some cojones to use Katrina as an excuse for W. Bush)
And oh btw, W. Bush inherited a $200+ billion annual surplus. These people should not be in government or compensated to spread their ignorance.
Friday, December 12, 2008
The Financial Crisis Framed
TW: As you may have noticed, I am concerned about the economy. A conservative economics blogger frames many of the challenges well. A consensus certainly has not been reached on how the US should address these challenges. Perhaps more importantly a consensus has not been reached on how China, Japan, Europe, India etc. should address these challenges. All policies interact without incredibly well-planned and well-executed policies the odds for success diminish.
From Doug Drezner via Pethkoukis at USNWR:
"1. Credit markets have yet to really unfreeze, because the underlying problem — putting a price on a lot of toxic debt — has yet to take place; [TW: by most metrics credit markets are still extraordinarily stressed but they are functioning, without TARP who knows if they would be]
2. It’s going to take some time for trust — a vital public good — to return to global capital markets;
3. The crisis has done nothing to unwind the global macroeconomic imbalances that contributed to the asset bubble in the first place — if anything, the crisis has temporarily reinforced it; [TW: read up on China if you think things are tricky here just be glad you are not Chinese]
4. There is a very dangerous prisoner’s dilemma game brewing in the interplay of fiscal expansion and trade policy. Unless export engines like Germany start to signal that they’ll prime their pump as well, you’re going to start to see some nasty protectionist attachments to any new government spending; [TW: the dreaded prisoner's dilemma, this one could actually be the real killer, if international players start goinig their separate ways then bar the door]
5. Fiscal expansions are going to take a long time to kick in, and the ones being proposed are not necessarily conducive to countercyclical boosts.
6. Beyond the fiscal expansion, this crisis is going to result in a lot more state intervention in the economy. Given what’s happened, it would be intellectually dishonest of me not to acknowledge that some of this intervention will be necessary. A lot of it, however, is going to be misguided and stunt long-term growth.[TW: the conservatives know they have no viable alternative to the intervention but they will continue to kick and scream just like they did from October 1929 until December 7th, 1941]"
http://www.usnews.com/blogs/capital-commerce
From Doug Drezner via Pethkoukis at USNWR:
"1. Credit markets have yet to really unfreeze, because the underlying problem — putting a price on a lot of toxic debt — has yet to take place; [TW: by most metrics credit markets are still extraordinarily stressed but they are functioning, without TARP who knows if they would be]
2. It’s going to take some time for trust — a vital public good — to return to global capital markets;
3. The crisis has done nothing to unwind the global macroeconomic imbalances that contributed to the asset bubble in the first place — if anything, the crisis has temporarily reinforced it; [TW: read up on China if you think things are tricky here just be glad you are not Chinese]
4. There is a very dangerous prisoner’s dilemma game brewing in the interplay of fiscal expansion and trade policy. Unless export engines like Germany start to signal that they’ll prime their pump as well, you’re going to start to see some nasty protectionist attachments to any new government spending; [TW: the dreaded prisoner's dilemma, this one could actually be the real killer, if international players start goinig their separate ways then bar the door]
5. Fiscal expansions are going to take a long time to kick in, and the ones being proposed are not necessarily conducive to countercyclical boosts.
6. Beyond the fiscal expansion, this crisis is going to result in a lot more state intervention in the economy. Given what’s happened, it would be intellectually dishonest of me not to acknowledge that some of this intervention will be necessary. A lot of it, however, is going to be misguided and stunt long-term growth.[TW: the conservatives know they have no viable alternative to the intervention but they will continue to kick and scream just like they did from October 1929 until December 7th, 1941]"
http://www.usnews.com/blogs/capital-commerce
Sunday, December 7, 2008
The Way To Not Avert a Depression
TW: I follow Pethokoukis as a way to keep track of reasonable right-wing economists. I did not care for these suggestions to averting a depression. They represent more or less unaltered right-wing dogma of the sort deployed extensively since 2001 by W. Bush. Somehow deploying more W. Bush economic policies does not seem a valid policy response.
From Pethokoukis at US News World Report advocates:
"...Tax cuts can work much faster. Withholding schedules can be changed. Payroll tax deductions stopped. In addition, there should be a tax holiday for corporate taxes along with a big rate cut. All this would boost confidence and let individuals and business keep more of what they earn. Fear is killing this economy."
TW: I agree tax cuts can be implemented faster than some but not all spending initiatives (i.e. aid to states to prevent layoffs and service cuts could be implemented relative rapidly as well, if the states know the aid is coming they can avoid the cuts in the first place). But what about the lag once a tax cut is implemented. Conservatives seem to have the belief that tax cuts are magic wands that move the invisible hands of the beloved free market. In reality firms would integrate a future tax cut into their planning but amidst plummeting demand why would they hire more workers and build more plants? Hence why would a corporate tax cut actually help anything anytime soon.
Implementing payroll tax reductions for lower and middle class earners might have some value but as I have mentioned earlier we are in a scenario where the rational decision for an individual is to hoard one's nuts. Reducing payroll taxes would likely merely induce more hoarding (which is largely what happened with last summer's stimulus checks).
The fundamental purpose of government induced spending in a demand driven contraction to ensure someone actually spends, not saves. Yes there will be a lag which is why it will be so painful to watch W. Bush sit on his hands for the next six weeks. Obama must hit the ground running come January 20th.
http://www.usnews.com/blogs/capital-commerce/2008/12/5/november-jobs-report-533000-reasons-for-obama-to-change-direction.html
From Pethokoukis at US News World Report advocates:
"...Tax cuts can work much faster. Withholding schedules can be changed. Payroll tax deductions stopped. In addition, there should be a tax holiday for corporate taxes along with a big rate cut. All this would boost confidence and let individuals and business keep more of what they earn. Fear is killing this economy."
TW: I agree tax cuts can be implemented faster than some but not all spending initiatives (i.e. aid to states to prevent layoffs and service cuts could be implemented relative rapidly as well, if the states know the aid is coming they can avoid the cuts in the first place). But what about the lag once a tax cut is implemented. Conservatives seem to have the belief that tax cuts are magic wands that move the invisible hands of the beloved free market. In reality firms would integrate a future tax cut into their planning but amidst plummeting demand why would they hire more workers and build more plants? Hence why would a corporate tax cut actually help anything anytime soon.
Implementing payroll tax reductions for lower and middle class earners might have some value but as I have mentioned earlier we are in a scenario where the rational decision for an individual is to hoard one's nuts. Reducing payroll taxes would likely merely induce more hoarding (which is largely what happened with last summer's stimulus checks).
The fundamental purpose of government induced spending in a demand driven contraction to ensure someone actually spends, not saves. Yes there will be a lag which is why it will be so painful to watch W. Bush sit on his hands for the next six weeks. Obama must hit the ground running come January 20th.
http://www.usnews.com/blogs/capital-commerce/2008/12/5/november-jobs-report-533000-reasons-for-obama-to-change-direction.html
Tuesday, December 2, 2008
If China Hits a Wall, Then What?
TW: China has become the latest Japan (i.e. the next great power). China given its entrepreneurial skills, high savings and a billion people may in fact be the next great power (Japan btw had the high savings but neither of the other two attributes). But China's emergence remains a work in progress, an effort that risks serious setbacks during the current worldwide economic imbroglio. There are numerous emerging data points suggesting the Chinese economy (like ours) is hitting a brick wall. The Chinese currency is now depreciating and output indicators are falling almost as rapidly as our own.
From Pethokoukis at US News&World Report:
"...Slower growth could lead to dangerous political instability. The sole source of the authoritarian government's legitimacy has been its ability to deliver an even-rising standard of living for more than a generation...This is why China has been hesitant to allow any dramatic appreciation by the yuan vs. the dollar. To the extent that a stronger currency slows the economy, the ruling Communist Party views a rapid yuan appreciation as an existential threat...
Let's remember that China a) has been -- along with America -- one of the primary engines of global economic growth as well as buy of U.S. bonds, and b) has nuclear weapons. While no freedom-loving member of Western Civilization has any love for the current despotic regime, neither do we want to see political and economic chaos in China. Fun China Fact: Back in the 1990s, Pentagon analysts thought a bad economy could result in the fall of the Communists from power and the political dissolution of the country into maybe a dozen smaller nations..."
http://www.usnews.com/blogs/capital-commerce/2008/12/1/bad-economy-could-cause-china-crackup.html?s_cid=rss:capital-commerce:bad-economy-could-cause-china-crackup
From Pethokoukis at US News&World Report:
"...Slower growth could lead to dangerous political instability. The sole source of the authoritarian government's legitimacy has been its ability to deliver an even-rising standard of living for more than a generation...This is why China has been hesitant to allow any dramatic appreciation by the yuan vs. the dollar. To the extent that a stronger currency slows the economy, the ruling Communist Party views a rapid yuan appreciation as an existential threat...
Let's remember that China a) has been -- along with America -- one of the primary engines of global economic growth as well as buy of U.S. bonds, and b) has nuclear weapons. While no freedom-loving member of Western Civilization has any love for the current despotic regime, neither do we want to see political and economic chaos in China. Fun China Fact: Back in the 1990s, Pentagon analysts thought a bad economy could result in the fall of the Communists from power and the political dissolution of the country into maybe a dozen smaller nations..."
http://www.usnews.com/blogs/capital-commerce/2008/12/1/bad-economy-could-cause-china-crackup.html?s_cid=rss:capital-commerce:bad-economy-could-cause-china-crackup
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